Season 2: Ep. 25 | Transforming Perception: Strategies for Effective Risk Culture

In this episode of the Risk Intel Podcast, host and CEO of SRA Watchtower, Ed Vincent and Niki White, Chief Growth Officer at SRA Watchtower delved into the intricacies of establishing and cultivating a culture of risk within financial institutions. Their discussion highlighted key drivers that can influence risk culture and Niki offered valuable insights from her past experience as a Chief Risk Officer at a bank. She provided detailed examples on how to transform the perception and reality of risk leadership, breaking things down into three sections: organizational strategy, drivers that form and influence risk culture, and how to change how risk is characterized at your institution.

How Chess Strategy Relates to Organizational Strategy

Niki begins with a personal anecdote that sets the stage for discussing risk culture. She shares her experience of playing chess with her two sons, each with distinctly different strategies, mirroring the varying approaches to risk management in many organizations today.

“My older son protects his valuable pieces at all costs...as opposed to my other son who very much takes a focused - divide and conquer strategy... I really think about that from a risk perspective,” says Niki.

Her story beautifully illustrates how different strategies can coexist within the same environment. Her older son’s protective strategy contrasts with her younger son’s aggressive approach, highlighting the need for balance in risk management. This analogy serves as a powerful reminder that understanding and managing different risk approaches is crucial for establishing a robust risk culture.

Drivers That Form and Influence Risk Culture

Establishing a culture of risk requires understanding the key drivers that shape it. Ed and Niki discuss five critical drivers: tone at the top, accountability, effective challenge, incentives, and risk awareness.

1. Tone at the Top: The leadership’s role in setting the tone for risk culture is paramount. Leaders must clearly communicate the risk strategy and ensure alignment across the organization. A clear and consistent message from the top ensures that everyone in the organization understands the risk strategy and their role in executing it.
2. Accountability: Accountability ensures that all departments are aligned and working towards the same goals. Without clear strategies and accountability mechanisms, departments may have conflicting objectives, undermining the overall risk strategy.
3. Effective Challenge: A culture that encourages effective challenge allows different departments to collaborate and address potential risks proactively. This collaborative environment helps in identifying and mitigating risks more efficiently.
4. Incentives: Aligning incentives with organizational goals is crucial for driving the desired behaviors in risk management. Incentives should promote behaviors that align with the organization’s risk strategy and long-term goals.
5. Risk Awareness: Risk awareness across the organization ensures that all employees understand how their actions impact the institution’s risk profile. Promoting risk awareness helps in developing a mature risk culture where every employee considers the risk implications of their actions. 

“Everyone in the bank is a risk manager and that level of education, of awareness... comes from the top,” Niki states.

How To Change the Perception and Reality of How Risk is Characterized at Your Institution

Historically, risk and audit leaders have often been seen as obstacles, the so-called "land of no." However, modern risk management requires a shift in this perception. Below are few ideas and examples Niki shared that risk leaders can implement and add value.

Have a Inquisitive Nature and Collaborate: Niki advocates for an inquisitive and collaborative approach to risk management. By asking thoughtful questions and seeking to understand operational goals, risk leaders can provide valuable insights and support, rather than simply imposing restrictions.

Always Add Value: Risk leaders should be seen as adding value to the organization by aligning risk management with strategic and operational goals. When risk leaders demonstrate how their insights can help achieve organizational objectives, they become integral to decision-making processes.

Have a Broad Skillset: Bringing diverse backgrounds and experiences into the risk function can help in viewing and managing risks from various perspectives. A diverse skillset within the risk team enhances its ability to address complex challenges effectively.

Conclusion

This conversation between Ed Vincent and Niki White offers profound insights into cultivating a robust risk culture. From setting the tone at the top to fostering risk awareness and changing the perception of risk leadership, their discussion highlights essential strategies for financial institutions. By understanding and implementing these key drivers, organizations can transform their risk culture, ultimately enhancing efficiency and shareholder value.

For more in-depth discussions on risk management and organizational strategies, subscribe to the Risk Intel Podcast and stay ahead in the evolving landscape of financial risk.